Dive Brief:
- Beleagured health insurer Bright Health is facing a new threat to its solvency after it spent the $350 million available in its credit facility, violating its agreement with lenders, management told investors on a Wednesday call.
- Under the terms of the agreement, Bright is required to maintain at least $200 million in the account, but overdrew its credit due to costs associated with discontinuing its health insurance exchange business, according to CEO Mike Mikan.
- The company has until April 30 to raise additional cash.
Dive Insight:
As of the end of the fourth quarter, Bright had fully withdrawn its $350 million credit facility, but its bank agreed to give the Minneapolis-based payer more time to return to its miminum liquidity. As of Feb. 24, Bright had over $150 million in cash, management said on the call.
The company also had more than $2.8 billion of additional cash and short- or long-term investments held by subsidiaries at the end of the year.
However, Bright expects in its upcoming annual report to disclose substantial doubt in its ability to continue as a “going concern,” according to its fourth-quarter financial filing. A going concern is a term for a business that is assumed will meet its financial obligations when they come due — i.e., one functioning without the threat of liquidation in the near future.
That doubt is predicated on Bright’s ability to obtain additional capital to fund operations over the next year.
In face of shaky finances, the company is taking actions to preserve cash, according to CFO Cathy Smith.
“We continue to settle the remaining claims for the discontinued operations and gain additional insight on the risk-adjustment liability,” Smith said. “We are working hard to obtain additional financing to alleviate going-concern qualification. We are laser-focused on addressing these issues, and will provide updates as appropriate.”
Bright spent more than $720 million in 2022 to end its commercial business operations. The insurtech slashed its Medicare Advantage footprint last year to just the state of California, and fully exited the Affordable Care Act exchanges in a bid to chase profitability.
Bright’s business performance will be more predictable moving forward, Mikan said, as the company pivots away from ACA markets the CEO called “volatile,” continues to pay down claims and works with state regulators to get fixed liability around discontined operations. Bright is continuing to work on options for its credit needs, as its current credit facility is set to mature early next year.
“We're working with our Board and our advisors to, at a minimum, replace the credit facility with full access to liquidity and put in a permanent capital structure that is more representative of the credit risk profile of the business going forward,” Mikan said.
Bright, which went public in June of last year, struggled during the coronavirus pandemic with medical costs. As a result of mounting losses, Bright shrunk the size of its business to try and reach profitability in 2023 by focusing on higher-margin businesses, such as care delivery and provider enablement arm NeueHealth.
The insurer’s stock has plunged amid the business cuts, along with leadership overhaul, layoffs and fines from regulators. Bright has been using reserve funds to cover its losses.
In December, the New York Stock Exchange notified Bright that it was in danger of being delisted from the exchange for noncompliance with the continued listing standard — its average closing price was less than $1 a share over the preceding month.
Bright reported a net loss of $1.4 billion in 2022, compared to a loss of $1.2 billion in 2021. The growing loss was mostly due to costs from ending its exchange operations.
Bright expects to bring in revenue between $2.9 billion and $3.1 billion in 2023.
